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A0443
Title: Monetary policy uncertainty and firm dynamics Authors:  Haroon Mumtaz - Queen Mary University of London (United Kingdom)
Lorenza Rossi - University of Pavia (Italy)
Stefano Fasani - Queen Mary University of London (United Kingdom) [presenting]
Abstract: A FAVAR model with external instruments is used to show that monetary policy uncertainty shocks are recessionary and are associated with an increase in the exit of firms and a decrease in entry and in the stock price with total factor productivity rising in the medium run. To explain this result, we build a medium-scale DSGE model featuring firm heterogeneity and endogenous firm entry and exit. These features are crucial in matching empirical responses. Versions of the model with constant firms or exogenous firms exit are unable to re-produce the FAVAR response of firms entry and exit and suggest a much smaller effect of this shock on real activity.